WHY WOULD I CONSIDER A FILING A CHAPTER 7 BANKRUPTCY?
The simplest answer is to get rid of debts that have made it hard to live your life. Chapter 7 Bankruptcy gives most people a large amount of relief for relatively low cost.
But that is not the only reason, there are other reasons as well. For example after a bankruptcy petition is filed a creditor may no longer initiate or continue any legal or other action against the debtor to collect a discharged debt.
Another is that bankruptcy can stop foreclosure proceedings giving a debtor more time to either find a away to keep the house or find alternative places to reside that may be a better fit for the budget.
And there are many more! Ask an Attorney to explain how bankruptcy can help you remove the pile of debt that you have been under.
WHAT DEBTS GET DISCHARGED?
Most unsecured debt is erased in bankruptcy. There are some exceptions to the general rule:
- Child support and alimony;
- Personal injury or death judgments ;
- Student Loans
- Income tax debts and all other tax debts (However these types of debts can sometimes be discharged so consult an attorney first about income tax liability before you file)
- Debts you forget to list in your bankruptcy papers, unless the creditor learns of your bankruptcy case; and
- Fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution.
Debts that are ordinarily discharged can also become non-dischargeable if they fall under the following criteria:
- Debts you incurred on the basis of fraud, such as lying on a credit application; Credit purchases of $1,225 or more for luxury goods or services made within 60 days of filing; Loans or cash advances of $1,225 or more taken within 60 days of filing
- Debts from willful or malicious injury to another person or another person’s property; Debts from embezzlement, larceny or breach of trust, and
- Debts you owe under a divorce decree or settlement unless after bankruptcy you would still not be able to afford to pay them or the benefit you’d receive by the discharge outweighs any detriment to your ex-spouse.
**This list contains some of the more common debts that cannot be discharged. This list is not exclusive, so please contact an attorney if you are unsure whether a certain debt is dischargeable
WHAT DOES A CHAPTER 7 BANKRUPTCY COST WITH AN ATTORNEY?
Fees in each case are different and therefore will usually have a different price. That being said a good and fair range for chapter seven cases will be between $1,000 to $2,000. This may seem like a lot of money but remember that the whole point of bankruptcy is to discharge your debt and save you tens of thousands of dollars in the long run.
HOW CAN I QUALIFY FOR A CHAPTER 7 BANKRUPTCY?
To qualify for relief using Chapter 7 Bankruptcy, the debtor may be an individual, a partnership, or a business entity. Apart from being in the classifications just listed, a debtor’s financial position must fall within the parameters of the means test which is a debt to income ratio set by the United States Bankruptcy Code (for more information see below). A potential Chapter 7 candidate must complete credit counseling classes within 180 days before filing.
There are also some restrictions if you have filed for bankruptcy (any chapter) before. For instance, if you have already used a Chapter 7 Bankruptcy in the past to discharge your debt you must wait eight (8) years before you file again. This is an important consequence to filing so make sure that if you are considering a bankruptcy that you have no other options available. Also, please note that if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court, comply with court orders, or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens; you cannot file.
DO I QUALIFY UNDER THE MEANS TEST?
The bankruptcy “means test” determines whether your income to debt ratio is low enough to qualify. It’s a formula designed to keep filers with higher incomes from filing for Chapter 7 Bankruptcy. High income filers who fail the means test may use Chapter 13 bankruptcy to repay a portion of their debts according to a designated plan.
Having to take the Chapter 7 means test does not mean that you have to be desolate to use Chapter 7 Bankruptcy. Under the means test you can still make significant income if your monthly expenses are great, such as if you have a high mortgage payment.
Only bankruptcy filers with primarily consumer debts need to take the means test. To take the means test, you must first determine whether your income is more or less than the median income in your state. If you earn more than the median, you must figure out whether you would have enough left over, after subtracting certain expenses, to repay some of your debt.
Median income levels vary by state and household size, and each county and metropolitan region has different allowed amounts for categories of expenses: basic necessities, housing, and transportation.
Our experienced attorneys can help you calculate the means test to see if you qualify for Chapter 7 Bankruptcy. Call today for more information!
HOW DOES CHAPTER 7 BANKRUPTCY WORK?
If you are qualified to file for a Chapter 7 Bankruptcy there are numerous documents that you are going to need to file, but,first things first, here is a brief overview of the general process:
The bankruptcy process officially begins when the debtor/attorney files a petition with the bankruptcy court. Usually the particular bankruptcy court used for filing is the one located where the debtor resides.
The petition, usually prepared by an attorney, will contain certain necessary documents such as:
- A schedule (defined lists) of assets and liabilities;
- A schedule of current income and expenditures;
- A statement of financial affairs;
- A schedule of executory contracts and unexpired leases.
- A copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began);
- A certificate of credit counseling;
- A copy of any debt repayment plan developed through credit counseling;
- Evidence of payment from employers, if any, received 60 days before filing;
- A statement of monthly net income and any anticipated increase in income or expenses after filing; and
- A record of any interest the debtor has in federal or state qualified education or tuition accounts.
Note: A husband and wife may file a joint petition or individual petitions. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors.
Along with the documents listed above the courts will charge a $245 case filing fee, a $39 miscellaneous administrative fee, and a $15 trustee surcharge. The fees must be paid to the clerk of the court upon filing.
Upon filing a petition, an “automatic stay” (stop order) will go into affect preventing most collection actions/efforts against the debtor or the debtor’s property. The stay does not necessarily stop all collection efforts and is only temporary while the bankruptcy petition is being sorted out. Check with an attorney for a list of what is and is not covered. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even make telephone calls demanding payments.
If you are in a Chapter 7 Bankruptcy and you are still being harassed after the petition has been filed, please contact one of our bankruptcy attorneys to see that relief may be available to you.
Between 20 and 40 days after the petition is filed, the case trustee (the court representative handling your case) will hold a meeting of creditors. During this meeting, the trustee puts the debtor under oath, and both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding the debtor’s financial affairs and property. If a husband and wife have filed a joint petition, they both must attend the creditors’ meeting and answer questions. This meeting is generally held to make sure that all creditors are on notice of the debtor’s pending bankruptcy, to inform the debtor of the consequences of filing bankruptcy and to make determinations about whether the debtor has committed bankruptcy fraud in the preparation of a petition.
If everything is in order, the bankruptcy claim has been determined valid and the all of the creditors have been accounted for the trustee will start the process of collecting and selling all non-exempt property. Once complete, a discharge will happen releasing individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. Because a chapter 7 discharge is subject to many exceptions, debtors should consult competent legal counsel before filing to discuss the scope of the discharge.
WHAT DO I HAVE TO PROVIDE TO START THE BANKRUPTCY PROCESS?
Well there are lots of documents that you have to provide, but the good news is that if you have an attorney all of the forms will be filled out correctly for you, so all that you have to do is provide the appropriate documentation of creditors, debts, expenses, etc. to the attorney and you will be well on your way.
Here is a brief (non-exclusive) list of the documents that you will need are:
- A list of all creditors and the amount and nature of their claims;
- The source, amount, and frequency of the debtor’s income;
- A list of all of the debtor’s property; and
- A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.
NOTE: Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse are required so that the court, the trustee and creditors can evaluate the household’s financial position.
SO WILL THE BANKRUPTCY TRUSTEE TAKE ALL OF MY PROPERTY AND SELL IT?
No! Filing bankruptcy will not deprive you of all of your belongings. There is certain property that is “exempt” and that property will be protected from being sold off to settle a debtor’s debts. In Arizona, a list of exempt property can be found at the following website.
WHAT IF I WANT TO KEEP MY HOME OR CAR BUT THEY ARE WORTH MORE THAN THE AMOUNT EXEMPTED?
Every situation is different, so there is no guarantee that you will be able to keep certain non-exempt property, but, usually based on certain financial factors, a debtor will be allowed to reaffirm a debt. A reaffirmation is an agreement between the debtor and the creditor that the debtor will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in the bankruptcy. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as the debtor continues to pay the debt. Again this is not an automatic right so please as an attorney to explore and advise all options available to you.
IF I MAY WANT TO REAFFIRM A DEBT BUT AM UNSURE CAN I WAIT AND SEE HOW THE BANKRUPTCY WORKS OUT?
If the debtor decides to reaffirm a debt, he or she must do so before the discharge is entered. The debtor must sign a written reaffirmation agreement and file it with the court. The Bankruptcy Code requires that reaffirmation agreements contain specific disclosures that must advise the debtor of exactly the amount of the debt being reaffirmed and exactly how it is calculated, and that reaffirmation means that the debtor’s personal liability for that debt will not be discharged in the bankruptcy. The disclosures also require the debtor to produce paperwork that they have enough income to pay the reaffirmed debt. If the debtor does not have enough the court may not approve the reaffirmation agreement.
Note: If a debtor does not have an attorney the court will have to approve the reaffirmation agreement. Otherwise, the attorney can certify that the debtor has been made aware of all rights and responsibilities regarding the reaffirmation without having to get the court’s approval.
WHAT IF I FIND OUT AFTER FILING THAT A CHAPTER 7 BANKRUPTCY IS NOT RIGHT FOR ME?
If you are eligible for another chapter (such as chapter 11, 12, or 13) the Bankruptcy Code allows the debtor to convert a chapter 7 case to a case a new chapter. However, a condition of the debtor’s voluntary conversion is that the case has not previously been converted to chapter 7 from another chapter.
WHAT IF I WITHHOLD INFORMATION OR LIE DURING MY BANKRUPTCY CASE?
The court can negate any action that it has taken to discharge your debt if the discharge was obtained through fraud by the debtor, if the debtor acquired property that is property of the estate and knowingly and fraudulently failed to report the acquisition of such property or to surrender the property to the trustee, or if the debtor makes a material misstatement or fails to provide documents or other information in connection with an audit of the debtor’s case. So essentially everything that the bankruptcy was trying to do to help you would be undone SO DON’T DO IT!
CAN MY BOSS FIRE ME FOR GOING BANKRUPT?
NO! The United States Bankruptcy Codes prohibits any employer from discriminating against you because you filed bankruptcy.